The Fundamentals of Money and Financial Systems

CHAPTER 13

Conclusion

The discussion of money plays a major role in economics. I have tried to not make this book a boring list of definitions and rules about money. To this end, I start with the quantity theory of money. The quantity theory is about the demand for money. It provides a plausible explanation for behavior of money and the response of economy to changes in money. Like most early attempts to unravel a complex phenomenon, the quantity theory had some shortcomings. Later developments remedy some of the problems and set the stage for a major contribution by Keynes, who combined many of the existing knowledge on the subject and augmented it with contributions of his own. Keynes’ work encouraged active government participation in the ...